Four years after Dodd-Frank was signed into law by President Barack Obama on July 21, 2010, the financial law has stymied economic growth, constrained credit, and "overwhelmed the regulatory system," Peter Wallison writes in The Wall Street Journal.

Backers say that Dodd-Frank is needed to tighten governmental regulation of banking and finance.

It passed the House with no Republican support and the Senate with three GOP votes, writes Wallison, a senior fellow at the American Enterprise Institute.

The 2,300-page law has yet to be fully digested by the regulatory agencies charged with enforcing it, Wallison wrote. Nearly 200 of its regulations have not been finalized, he said.
Regulators are uncertain what Congress intended based on the wording of the act.

Dodd-Frank bought into the narrative that the 2007-08 financial crisis was the result of inadequate regulation of Wall Street and the greediness of the financial community. It proscribed "unprecedented government control," according to Wallison.

In his commentary, Wallison says the financial crisis was caused by the government's own subprime mortgage underwriting policies. Some 76 percent of all low-quality U.S. mortgages were tied to government. These loose standards made their way into the wider market, helping to foster a colossal housing bubble between 1997 and 2007, writes Wallison.

Dodd-Frank, Wallison says, did not address government housing policies disregarding Fannie Mae and Freddie Mac – the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. Instead, it placed further restrictions on the private sector.

Dodd-Frank set up the Consumer Financial Protection Bureau and funded it through the Federal Reserve in "a clear evasion of the constitutional structure in which Congress appropriates funds for executive branch operations," writes Wallison.

The law also established the Financial Stability Oversight Council, which has the power to designate non-bank financial institution as "too big to fail." The council appears to be casting its regulatory net over big companies in the capital markets and securities industry, according to Wallison.

The damage the law causes is illustrated at J.P. Morgan Chase & Co. The firm is cutting back its staff by 5,000 even as it hires 3,000 additional compliance officers – above and beyond the 7,000 employed last year, according to Wallison.

"Substituting employees who produce no revenue for those who do is the legacy of Dodd-Frank, and it will be with us as long as this destructive law is on the books," Wallison wrote.

Four years after Dodd-Frank was signed into law by President Barack Obama on July 21, 2010, the financial law has stymied economic growth, constrained credit and "overwhelmed the regulatory system," writes Peter Wallison in The Wall Street Journal.